Greece, foreign lenders close in on deal to unlock aid

By Lefteris Papadimas and Ingrid Melander

ATHENS/AIX-EN-PROVENCE, France | Sun Jul 7, 2013 4:41pm EDT

(Reuters) - Greece is likely to reach a deal with foreign lenders on its latest bailout review before a meeting of euro zone finance ministers on Monday to decide on further aid, EU and Greek officials said on Sunday.

Athens has been in talks with inspectors from the European Union, European Central Bank and International Monetary Fund "troika" for nearly a week to show it can deliver on its pledges after failing to meet public sector reform targets.

Greece hopes euro zone finance ministers will free up its next 8.1 billion-euro ($10.4 billion) tranche of aid when they meet on Monday because it needs part of the money to redeem about 2.2 billion euros of bonds in August.

Bailed out twice by its foreign lenders, Greece relies on foreign aid to stay afloat. Failure to successfully conclude its bailout review could push it close to bankruptcy once again, triggering a new upsurge in the euro zone crisis.

"We made very good progress," Poul Thomsen, head of the International Monetary Fund's mission to Greece, told reporters on Sunday, adding that he hoped talks would be concluded early on Monday before the Eurogroup meeting of finance ministers.

Greece's Finance Minister Yannis Stournaras also said he was optimistic of a deal on Monday morning. The two sides were due to leave Athens on Sunday, but could remain in touch to nail down final details.

The latest loan installment is one of the last big cash injections that Greece stands to get as part of a 240 billion-euro rescue package that expires at the end of 2014.

EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in France that the negotiations were almost complete, but Athens needed to intensify efforts to deliver on reform commitments.

"The ball is in the Greek court and it depends on whether Greece is able to deliver the remaining elements of the milestones that have been agreed," he said.

He reiterated that aid for Greece could be split into installments. Lenders have become increasingly frustrated with Greece's slow pace in shrinking the civil service and making it more efficient and less corrupt.

Talks with the troika stumbled last week over a missed June deadline to put 12,500 state workers into a "mobility scheme", under which they are transferred or laid off within a year, but an agreement was finally reached on Saturday.

"The troika gave Greece an extension of a few months," an official at the administrative reform ministry said on Sunday. "A second wave of another 12,500 staff will be placed in the scheme until the end of the year."

According to ministry officials, Greece plans to put around 3,500 municipal police staff into the scheme.

The prospect of job cuts prompted a meeting of the country's association of local governments on Sunday, where a nationwide strike was called for the following day.

"The strike was decided because of government plans to tap municipal workers for the scheme. This will undermine municipal services," an official at the Athens mayor's office said.

With tempers boiling over the plans to put municipal workers in the mobility pool, five workers attacked Athens mayor George Kaminis after he left the meeting, pushing him and throwing punches, police said.

Other issues discussed with the troika included ways to cover a fiscal gap, including a shortfall of more than 1 billion euros at state-run health insurer EOPYY, and a possible reduction in a sales tax for restaurants that Athens had sought as a concession from lenders.

Stournaras said the tax reduction issue remained on the table, adding that Athens managed to avoid further pay and pension cuts for military and police staff.

(Additional reporting by Ingrid Melander and Michel Rose in Aix-En-Provence, Writing by George Georgiopoulos, editing by Deepa Babington and Tom Pfeiffer)